Breaking News: Headline US Inflation Drops to 6%, US Dollar Undecided

Headline inflation (y/y) in the US fell by 0.4% to 6% in February, in line with analysts’ expectations, while core inflation nudged 0.1% lower to 5.5%, also in line with forecasts. According to the US Bureau of Labor Statistics,

‘The index for shelter was the largest contributor to the monthly all items increase, accounting for over 70 percent of the increase, with the indexes for food, recreation, and household furnishings and operations also contributing. The food index increased 0.4 percent over the month with the food at home index rising 0.3 percent. The energy index decreased 0.6 percent over the month as the natural gas and fuel oil indexes both declined.’


US Dollar Grips on as SVB Fallout Brings US CPI into View Ahead of the Fed

The recent bout of banking contagion fear, sparked by the Silicon Valley Bank failure, will remain uppermost in the Fed’s thinking when they announce their latest monetary policy decision on March 22nd. While the central bank’s actions in making depositors whole have eased concerns, the fear that other, smaller, banks are sitting on unrealised bond losses will continue, especially if the Fed continues to hike interest rates. Market expectations for further rate hikes have been pared back sharply in the last few days, but if inflation remains high then chair Powell and his colleagues will have to decide whether to continue to push down on inflation by tightening monetary conditions or to wait and see if prior rate hikes start passing through the system and dampen price pressures.

The US dollar slipped 15 pips after the release before recouping these small losses and trading flat. The US dollar is currently battling contrasting forces of banking contagion fears and lower US Treasury yields and remains highly volatile.

US Dollar (DXY) March 14, 2023


Chart via TradingView

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